As part of the recent fiscal cliff deal, Congress extended the Mortgage Forgiveness Debt Relief Act through the end of 2013. This is great news for those who may complete a short sale, loan modification, or other mortgage workout in 2013.
As part of a short sale, loan modification, and certain other situations, lenders may forgive and write off a portion of the principal debt owed to the lender under the mortgage loan. The IRS considers this forgiven housing debt taxable income as “discharge of indebtedness income.” The Mortgage Forgiveness Debt Relief Act creates an exemption from taxation for this income when it relates to the sale of a qualified principal residence.
For more information on how this extension may affect your short sale and/or loan modification, or if you are thinking about pursuing a short sale or loan modification and would like more information, contact a real estate attorney.